Impact of Monetary Policy Transmission Mechanisms on Capital Market Liquidity in Nigeria (2006-2020)

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue VI, June 2021 | ISSN 2454–6186

Impact of Monetary Policy Transmission Mechanisms on Capital Market Liquidity in Nigeria (2006-2020)

Adeoye, Mary A.¹ and Nasiru, Halimah Y.^2
1,2Department of Management and Accounting, Ladoke Akintola University of Technology, Ogbomoso Oyo State, Nigeria

Abstract: This study examined the impacts of monetary policy transmission mechanisms on the liquidity of Nigerian capital market from 2006-2020. The required data were sourced from Central Bank of Nigeria (CBN) statistical bulletin. Capital market liquidity is the dependent variable while the independent variables are; treasury bill rate, savings rate, net domestic credit, exchange rate and inflation rate. The Ordinary Least Square multiple regressions with econometric view were used as data analysis techniques. The study found that monetary policy transmission mechanism does not have significant impact on the liquidity of the capital market as against the findings of Akani and Imegi (2017). Also, all the channels of monetary policy transmission mechanisms have positive relationship with capital market liquidity except exchange rate. It therefore recommends that exchange rate should be worked upon so as to enhance the liquidity of Nigerian capital market in view of its negative impact on the capital market liquidity

Keyword: monetary policy transmission mechanism, liquidity of capital market, treasury bill rate, savings rate, net domestic credit, exchange rate and inflation rate.

I. INTRODUCTION

Due to structural and economic changes and subsequent transitions to new policy regimes, study of monetary transmission mechanisms in emerging economies has gained significant significance since the beginning of the 1990s. These economies, on the other hand, have distinct characteristics from those of developed countries. According to Akani and Imegi (2017), monetary policy refers to the monetary authority’s stance on monetary issues. It deals with financial institution controls, aggressive purchases and sales of paper assets to influence improvements in the money supply and interest rate maintenance. Monetary policy has existed in Nigeria since the founding of the Central Bank in 1959, and the mechanism for implementing it has undergone many changes. Direct monetary management was the key strategy of monetary policy implementation during this period, with a later transition to an indirect (market-based) approach in 1993. Direct monetary regulation was emphasized in the direct method (1974-1992).

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